Two big announcements were made by Macy's (NYSE:M) recently -- one about its plans to close 40 stores and lay off around 4,000 employees, and another detailing the company's weak holiday period performance.
In this video segment, Vincent Shen and Sean O'Reilly go over why the company's stock has fallen so much and devote a few words to the company's overall strategy. With a bargain valuation and a rich yield, this reeling retailer might be an attractive buy for long-term investors.
Listen to the full podcast by clicking here. A transcript follows the video.
This podcast was recorded on Jan. 12, 2016.
Vincent Shen: Another thing I think that's driving a lot of this is the fact that for at least as of their most recently reported quarter, trailing ...
Sean O'Reilly: That was actually the ...
Shen: Their earnings are down to 2012 levels. They also have reported ... Two press releases actually came out last week. One for the store closings, some of the layoffs. But also around their holiday sales, which really came in weak. They were expecting for the obviously very important November and December months sales to fall by maybe 2% to 3%. They actually came in at comparable stores down 4.7% for the holiday season. So, really hurting there. And also the fact that this warm weather that everybody's been talking about hurting apparel retailers, the fact that Macy's and Bloomingdale's they have a lot of representation in the regions that were hit with the really warm weather ...
O'Reilly: Do you buy that? Because if it's warm outside I'm more likely to leave my house, but on the other hand I'm not going to buy a jacket.
Shen: You're not buying a jacket, you're not buying your sweater, your scarves, your gloves ... All things that a lot of these retailers including Macy's, including Bloomingdale's ...
O'Reilly: They count on, because it's a $200 jacket.
Shen: They're counting on, exactly. Also the fact that the value of the U.S. dollar is still hurting their spending among tourists, who will go to some of their flagship locations, like you mentioned in New York for example.
O'Reilly: And then they'll spend less or something.
Shen: Exactly. So keeping all that in mind, we mentioned the $375 million of revenue they'll be losing as a result of closing the stores. But they're also really focused ... Those layoffs, like we mentioned, the $400 million ... Is going to generate about $400 million of reductions to the SG&A expenses. Really big for them, again, to reduce those expenses for them to get that net income number higher, since it has fallen to those 2012 levels.
Ultimately the company says, on a brighter note in terms of the holiday season, they mentioned that they had seventeen million online orders at their Macy's and Bloomingdale's websites during the holidays. So that's up 25% from their previous year.
Shen: So some progress where they're focused, right? And also, the stock's at $38 per share. It's up about 10% year to date, I think, on some of this news that people think is really important to push the company into a new era. But it's really a bargain right now.
O'Reilly: It's so cheap.
Shen: You and I were talking about this before the show. It's trading at 10 times forward earnings, and there's a 4% yield on the shares. That's pretty ...
O'Reilly: The P/E in the S&P, last I checked -- the S&P 500 Index right now, so the average 500 largest corporations right now in America -- is like 20. This is ... And they're still expected to grow through the end of the decade, last I checked.
Shen: Yeah, so the growth rates are definitely low, maybe low single digits. But the fact of the matter is, this is Macy's. This is Bloomingdale's. Very strong bellwether names in the apparel industry. Yes, they're having their struggles, but you can't honestly expect that as they close some of their weaker locations, that this weather's going to last forever. That the dollar's going to be trading like this even forever. So long term, this seems like a really really solid place to jump in right now and just watch the stock as they hopefully are able to execute their recovery and their new growth plan.